It’s one of the most successful investments of all time. The $32 million that Naspers Ltd. invested in China’s Tencent Ltd. in 2001 is now worth more than $200 billion. But the South African company may never be able to reap the full rewards of that bet, because the way that index investing works means Naspers is simply too big for its home market to swallow.
The stake in Tencent has made Naspers the largest constituent of the Johannesburg Stock Exchange, accounting for almost a quarter of the index’s weighting. That creates difficulties for large investors that track the index and often limit themselves to having just 12% of their portfolio in any one stock. Because whenever the Naspers share price increases, which it should in line with Tencent’s gains, it takes up more of their portfolios and they have to reduce their holdings.